BT 2008 Annual Report Download - page 42

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BT Group plc Annual Report & Form 20-F 41
development of new processes and systems. These costs have
been disclosed as a specific item in the 2008 financial
statements. When we announced details of the reorganisation in
April 2007 we estimated the transformation activities would
result in restructuring costs of £450 million. We expect to incur
the remainder of these costs in 2009 and generate a payback
within two to three years.
We have changed the presentation of our financial results to
reflect the reorganisation. Our line of business results for 2007
and 2006 have been restated to ensure consistent presentation
across all years under review. The reorganisation has not
impacted the overall group results.
The historical results of the lines of business have changed,
reflecting changes to our intra-group trading arrangements and
the allocation of costs between the lines of business. The main
change to the intra-group trading arrangements is that a
significant amount of intra-group trading has been eliminated.
The exception to this is Openreach, as trading between
Openreach and the other customer-facing lines of business has
not been impacted by the group’s reorganisation.
BT Operate and BT Design do not generate any revenue and
operate on a cost recovery model. This allows the results of the
customer-facing lines of business to reflect the end-to-end
profitability of serving their customers. The depreciation and
amortisation incurred by BT Operate in relation to the networks
and systems it manages and operates on behalf of the rest of
the business are allocated to the customer-facing lines of
business based on their expected utilisation. The assets managed
by BT Operate and the associated capital expenditure in the year
are also allocated to the customer-facing lines of business in a
manner consistent with the depreciation and amortisation.
Accordingly, the segmental results do not necessarily reflect the
operating results of the lines of business as if they were
independent business operations.
We do not consider either BT Design or BT Operate to be
reportable segments in accordance with IFRS, and therefore the
reportable segments remain the customer-facing lines of
business.
Intra-group revenue generated from the sale of regulated
products and services is based on the regulated price. Intra-
group revenue generated from the sale of other products and
services is agreed between the relevant lines of business.
Internal cost recorded by
BT Global
Services
£m
BT
Retail
£m
BT
Wholesale
£m
Openreach
£m
Other
£m
Total
£m
................................................................................................................
Internal revenue recorded by:
BT Global Services ––––––
BT Retail 169 – 94 3 17 283
BT Wholesale 19 – – 1,233 – 1,252
Openreach 395 2,438 39 – 1,508 4,380
Total 583 2,438 133 1,236 1,525 5,915
The table above analyses the trading relationships between each
of the lines of business for 2008. The majority of the internal
trading relates to Openreach and arises on rentals, and any
associated connection or migration charges, of the UK access
lines and other network products to the customer-facing lines of
business, both directly, and also indirectly through BT Operate
which is included within Other in the table above. Internal
revenue arising in BT Retail relates primarily to BT Ireland and
Enterprises. Internal revenue arising in BT Wholesale relates to
the sale of line cards and access electronic services to
Openreach.
.............................................................................................................................................................
Report of the Directors Financial
Operating profit (loss) before specific items Depreciation and amortisation EBITDA before specific items
2008 2007b2006b2008 2007b2006b2008 2007b2006b
£m £m £m £m £m £m £m £m £m
.............................................................................................................................................................................................................................
117 70 85 744 665 615 861 735 700 BT Global Services
1,050 912 814 445 445 412 1,495 1,357 1,226 BT Retail
502 592 609 893 908 838 1,395 1,500 1,447 BT Wholesale
1,222 1,220 1,228 689 707 800 1,911 1,927 2,028 Openreach
4(81) (103) 118 195 219 122 114 116 Other
Intra-group
2,895 2,713 2,633 2,889 2,920 2,884 5,784 5,633 5,517 Group totals